3 Major Challenges Facing Car Subscription Companies Today
Car subscription services have become increasingly popular in recent years as an alternative to traditional car ownership. According to BCG, that market could easily grow to a $30-40 billion valuation within the next 10 years.
Like software and digital services, changing customer preferences and a turn away from traditional ownership models have steadily driven the automotive market toward subscription-based offerings. Additionally, the COVID-19 pandemic pushed many commuters away from public transit and other shared mobility modes, to seek the comfort and isolation of private vehicles.
However, as with any business, car subscription companies face numerous, market- and product-specific challenges that can impact their success. In this article, we will discuss the three major challenges facing car subscription companies today and provide strategies to overcome them.
Challenge 1: Cost of Acquiring and Maintaining a Fleet of Vehicles
Car subscription companies need to acquire and constantly maintain a large fleet of vehicles that are available for subscribers with as little delay as possible. According to post-pandemic research, 80% of car buyers are willing to switch brands in order to avoid waiting times. The ability of a car subscription service to acquire its fleet and provide vehicles to customers as soon as possible is literally make-or-break.
Causes of High Acquisition and Maintenance Costs
Building a deployable fleet is a massive cost, especially for new companies or those looking to expand to new markets.The major costs associated with acquiring and maintaining a vehicle fleet can be broken down into three categories.
Purchase and infleeting
The largest cost associated with acquiring a vehicle fleet is the actual purchase of the vehicles. Depending on the vehicle make, model, and options, new vehicles will be a massive upfront cost, and car subscription companies must purchase them in bulk to have a fleet available for subscribers. Fleets are usually made up of brand new or like-new vehicles that are equipped with the latest tech and safety features – hence, expensive.
Next comes infleeting – the process of bringing purchased vehicles online and available for customers – which brings with it another series of operational costs that need to be accounted for. Vehicles need to be registered with local authorities, insured, and installed with any required technology from the subscription service (GPS tracking, driver monitoring, proprietary software, etc.)
Maintenance and repairs:
In addition to acquisition and infleeting costs, car subscription companies must also consider the ongoing costs associated with maintaining a fleet of vehicles.
Regular maintenance can help prevent breakdowns and reduce the need for more costly repairs down the line. But maintenance costs add up quickly, especially if there are frequent breakdowns or accidents. Companies can implement preventive maintenance plans to reduce maintenance costs, and automate regular maintenance workflows to ensure that vehicles are kept in good condition. But like it or not, it’s a sizable recurring cost that won’t go away.
Another cost associated with maintaining a fleet of vehicles is depreciation. Vehicles depreciate in value over time (losing between 15-25% in their first year) which can lead to losses for car subscription companies if they are unable to sell or lease them for a profit.
We’ve just touched on the major costs associated with acquiring and maintaining a fleet of vehicles. But what can companies do about it?
Strategies for Overcoming High Acquisition and Maintenance Costs
Car subscription companies can overcome the costs associated with acquiring and maintaining a fleet of vehicles by implementing several strategies.
One effective strategy is to purchase pre-owned vehicles, rather than brand new vehicles direct from the manufacturer. Pre-owned vehicles can be significantly less expensive than new vehicles, and car subscription companies can still purchase them in bulk in order to meet inventory requirements. Purchasing like-new offers a significant cost advantage, without seriously impacting customer experience.
Paradoxically, in some cases, pre-owned vehicles may already have undergone necessary maintenance – fixes which wouldn’t have been identified until the car was driven off the lot in the first place.
Another strategy for reducing the costs of maintaining a fleet of vehicles is to implement preventive maintenance plans. Plans like these can be automated as part of a comprehensive maintenance workflow, and scheduled along with the vehicles regular subscription and return cycles.
Car subscription companies should also proactively sell or lease older vehicles in their fleet, and consistently replace them with newer ones. This can help reduce the impact of depreciation on the company's finances (and keep customers happy with the latest vehicles and models on hand).
Finally, car subscription companies can consider implementing safety measures such as GPS tracking and driver monitoring to reduce the risk of accidents. By reducing the number of accidents and claims, car subscription companies can reduce their insurance costs and improve their bottom line.
In conclusion, by implementing these strategies, car subscription companies can overcome the costs associated with acquiring and maintaining a fleet of vehicles. Purchasing pre-owned vehicles, implementing preventive maintenance plans, and implementing safety measures can all help reduce costs and improve the profitability of car subscription companies.
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Challenge 2: Ensuring Sufficient Insurance Coverage
Car subscription companies must have sufficient insurance coverage to protect themselves and their subscribers in the event of an accident. However, finding affordable insurance coverage can be a challenge – especially when ensuring an entire fleet.
Car subscription companies face numerous challenges with insurance. One of the biggest challenges is the higher risk of accidents associated with car subscription services. Subscribers may not be as familiar with the vehicles they are driving, which can increase risk. And similar to traditional rental car businesses, car subscribers may also pursue riskier driving with a fleet vehicle, knowing that neither the vehicle ownership, nor the insurance policy, nor the maintenance burden are their responsibility.
Another challenge is the cost of insurance premiums. Insurance companies tend to view car subscription companies as a higher risk than traditional rental car companies, yielding higher premiums. This can make it difficult for car subscription companies to offer affordable insurance – particularly for luxury and performance vehicles.
Finally, depending on the market, car subscription companies may struggle to find insurance providers that are willing to offer coverage for their subscription fleet at all. Car subscription services are still a relatively new concept, and many insurance providers do not have a deep understanding of the risks associated with this business model.
Car subscription companies face several challenges when it comes to ensuring comprehensive and affordable insurance coverage for their customers. The higher risk of accidents associated with car subscription services, the cost of insurance premiums, and the difficulty of finding insurance providers that understand the unique risks of this business model all contribute to this challenge.
So what can they do about it?
Strategies for Ensuring Sufficient Insurance Coverage
Car subscription companies can implement several strategies to deal with the challenges associated with ensuring comprehensive and affordable insurance coverage for their customers.
One effective strategy is to understand more carefully the driving behaviors of their subscribers. Using driver monitoring and GPS tracking, for instance, subscription companies can get a better picture of how their fleet is being driven, and where – if possible – they can impose guidelines to reduce the total number of accidents and damages, and therefore, claims.
Note: this is a long-term strategy. Vetting customers and monitoring driving behaviors may only yield better outcomes over a lengthy period of time, and only then will a subscription company gain leverage to demand better premiums and coverage from insurers – which, unfortunately, is also not a guarantee.
Car subscription companies can also consider self-insurance as a cost-effective option. Self-insurance involves setting aside funds to cover the cost of claims, rather than paying premiums to an insurance company. This can be a good option for car subscription companies with a very large fleet of vehicles, as it can help reduce insurance costs over time. But it is a massive undertaking that most subscription companies will not be ready to take on.
Challenge 3: Providing Exceptional Customer Experience
Providing excellent customer experience is also a major challenge for subscription companies.
First is the lack of communication with subscribers. Unlike dealerships (where customer experience is everything) and rental car companies (where renters have recurring, short-term interactions with the agency) car subscription companies provide customers with a vehicle, and then largely step back.
Subscription companies still need to communicate regularly with their subscribers to keep them informed about their subscription or any issues that arise. But this is a largely digital, and non-personal interaction. Without effective communication, subscribers may become frustrated and dissatisfied with the service.
Another challenge is limited customer support options. Limited support options can lead to longer wait times and lower satisfaction rates. So car companies must provide (and maintain) multiple support channels – phone, email, and chat – to ensure that subscribers can get the help they need when they need it.
Inconsistent experiences across different locations or regions can also be a problem for car subscription companies. Subscribers expect consistent experiences regardless of where they are using the service – however, the reality is that from an operations standpoint, regional variability is a natural occurrence. Inconsistent experiences can lead to confusion and frustration for subscribers, and may result in them seeking out a competitor.
Finally, as mentioned above, car subscription companies must also ensure that their vehicles are well-maintained, in good condition, and – most critically – available for subscription. Any issues with the vehicles or vehicle availability can lead to frustration and dissatisfaction among subscribers.
Strategies for Providing Exceptional Customer Service
While there are several strategies that car subscription companies can implement to improve the customer experience, one thing they could do that would make a significant impact is to improve communication with subscribers.
Car subscription companies can improve communication by providing regular updates about vehicle availability, subscription renewal dates, new features, and any changes to the service. Additionally, car subscription companies can ensure that each of their communication channels and their mobile app is fully optimized for customer experience. Responding promptly to inquiries will help subscribers feel heard and valued, and can lead to higher satisfaction rates.
Checking in proactively on customers is a chance for companies to show their subscribers that they are serious about customer experience. They should also be prepared to offer promotions and other compensation for poor service experience without any hassle to the customer. This focus on customer satisfaction encourages retention and renewed subscription.
Most critically, companies can standardize customer service and operations across markets using workflow automation. By creating uniform, automated workflows for things like maintenance, handovers, customer service inquiries, complaints, and other key customer-facing processes, companies can remove the variability in customer experience across regions and teams, and provide the same high-quality service without exception.
In conclusion, improving communication with subscribers is one thing that car subscription companies can do to make a significant impact on the customer experience. By providing regular updates, offering multiple communication channels, and implementing customer feedback programs, car subscription companies can build stronger relationships with subscribers for a better customer experience and improved retention.
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